BASIC MARKETING For use only with Perreault/Cannon/ McCarthy texts, © 2011 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin Chapter 11 Place and Development of Channel Systems

At the end of this presentation, you should be able to: 1.Understand what product classes suggest about Place objectives. 2.Understand why some firms use direct channel systems while others work with intermediaries and indirect systems. 3.Understand how and why marketing specialists develop to make channel systems more effective. 4.Understand how to develop cooperative relationships and avoid conflict in channel systems. 5.Know how channel members in vertical marketing systems shift and share functions to meet customer needs.

At the end of this presentation, you should be able to: 6.Understand the differences between intensive, selective, and exclusive distribution. 7.Know the main approaches firms use to reach customers in international markets. 8.Understand important new terms.

Place Decisions Are Guided by “Ideal” Place Objectives (e.g., time, place, possession) Key Issues Product Classes Suggest Objectives (urgency, Convenience, information) Product Classes Suggest Objectives (urgency, Convenience, information) Place System Is Not Automatic (more than one place arrangement needed) Place System Is Not Automatic (more than one place arrangement needed) Place Decisions Have Long-run Effects

Channel System May Be Direct or Indirect Internet Makes Direct Distribution Easier Lower Cost Direct Contact with Customers Quicker Response or Change in Marketing Mix Suitable Intermediaries Not Available SomeReasons For Choosing Direct Channels Greater Control

Direct Channels Are Common with Business Customers and Services

When Indirect Channels Are Best (convenience)

Checking Your Knowledge Mary’s Kitchen is a catering business that operates by means of its own website. Customers order party platters, pastries, and other foods that the company makes to order. The items are then vacuum-packed in dry ice and shipped to the customer’s address via overnight delivery. Mary’s Kitchen is part of a(n): A. indirect channel. B. dual channel. C. intermediary channel. D. direct channel. E. traditional channel.

Channel Specialists Adjust Discrepancies with Regrouping Activities Sorting (separating products into the grades) Sorting (separating products into the grades) Bulk-Breaking (dividing larger quantities into smaller quantities) Bulk-Breaking (dividing larger quantities into smaller quantities) Accumulating (collecting products from many small producers) Accumulating (collecting products from many small producers) Assorting (putting together a variety of products) Assorting (putting together a variety of products)

Channel Specialists May Reduce Discrepancies and Separations

A Discrepancy of Assortment

Channel Relationship Must Be Managed Role of Channel Captain (guides channel relationships) Conflict Handling Whole-Channel Product- Market Commitment Choosing the Type of Relationship (e.g., traditional or VMS). Key Issues In Channel Management

Producers or Intermediaries May Be Channel Captains

Vertical Marketing Systems Focus on Final Customers Characteristics Type of channel Little or none None Typical “inde- pendents” Amount of cooperation Traditional Vertical marketing systems AdministeredContractualCorporate Control maintained by Examples Fairly good to good Contracts McDonald’s Complete One company ownership Florsheim Some to good Economic power and leadership General Electric

Channel Relationships © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Checking Your Knowledge Dave runs “Maid to Perfection,” a residential and business cleaning service. He paid a fee to be part of the “Maid to Perfection” system of local operators. The written agreement gives him the right to use the company name and operations manual, and the agreement promises Dave that there will not be another “Maid to Perfection” operator in his immediate area. He operates as a semi-independent entrepreneur, but is still part of a national organization. Dave is part of a(n): A. traditional channel. B. contractual channel. C. corporate channel. D. administered channel. E. dual channel.

The Best Channel System Should Achieve Ideal Market Exposure (product available to satisfy target customer needs) Intensive Selective = number of outlets Exclusive Market Exposure Strategies

Intensive Distribution © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Interactive Exercise: Ideal Market Exposure

Checking Your Knowledge Chocolate Dreams is a manufacturer of expensive, high- quality, hand-made “old style” candies that are sold through fine department stores and certain bookstores and fine gift shops. The ideal market exposure for products manufactured by Chocolate Dreams is: A. intensive. B. comprehensive. C. exclusive. D. extensive. E. selective.

Limiting Market Exposure Retailer Horizontal Arrangements Are Illegal Retailer Producer Vertical Arrangements May Be Legal Wholesaler

Channel Systems Can Be Complex (multichannel distribution)

Key Elements of Distribution Strategy © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Entering International Markets Exporting Licensing (e.g., patent) Licensing (e.g., patent) Management Contracting (mgt/mkt skills) Management Contracting (mgt/mkt skills) Joint Venture (partnership) Joint Venture (partnership) Direct Investment (ownership) Direct Investment (ownership) Generally increasing investment, risk, and control of marketing

Carl is working his way through college as an independent distributor of the Mack-The-Knife Co. The Mack product line includes kitchen knives, hunting knives, and other special-purpose cutlery. Carl makes sales presentations to potential customers in their homes. If a customer wants to make a purchase, Carl buys the knives from Mack and sells them to the customer at a markup. For example, Mack's most popular knife is a chef's knife that Carl buys for $25 and resells to the consumer for $50. Carl: A. Is part of a direct-to-customer channel. B. Is engaged in direct marketing. C. Is engaged in direct selling, but is part of an indirect channel. D. All of the above. E. None of the above. Study Question 1

Small farmers in the mountains of Peru pick coffee beans by hand, obtaining only a bucket a day. Then they sell them to buyers who put the beans in large bags to be shipped to processors. This regrouping activity is called: A. Assorting B. Wholesaling C. Bulk-breaking D. Sorting E. Accumulating Study Question 2

Costco is a warehouse store that sells groceries, household items, and business products. Purchase quantities tend to be larger than in traditional stores that serve final consumers. For example, soft drinks are only sold in 24-can cases, not in 6-packs. Coffee is sold in 3- pound cans instead of one-pound foil packs. Which regrouping activity is Costco shifting to the consumer? A. Accumulating. B. Adjusting discrepancies. C. Assorting. D. Bulk-breaking. E. Sorting. Study Question 3

Retail stores that sell "seconds" and "irregular" products at discount prices are flourishing all over the country. These stores are needed because of what regrouping activity? A. Accumulating B. Bulk-breaking C. Sorting D. Assorting E. None of the above Study Question 4

A large food retailer acquiring a cheese factory is an example of: A. dual distribution. B. vertical integration. C. a tying contract. D. horizontal integration. E. internal expansion. Study Question 5